10 February 2010

PUBLIC FINANCE

Greek civil servants went on strike today to protest government austerity measures. In Greece there are a lot of them; an incredible one out of three Greeks works for the government with cradle to grave security. Among the “austerity” measures being protested today is raising the retirement age to 63 in 2015. This is a sad example of what happens when rampant public spending spins out of control. Public debt is currently more than four times greater than the EU ceiling allows, threatening the entire Euro-zone. Portugal, Spain, Ireland and Italy are almost in as bad shape and the European central bank is struggling to contain the crisis.

This is one of the reasons pressure on the dollar has not been as strong as it might otherwise be, because Europe is in worse shape. But for how long? If we continue to expand public employment and have situations where government employees earning over $100,000 can retire in their 50s with 90% of their salary we are certain to go broke, only there will be no one to bail us out. Gross public debt has risen from 57.4% of GDP in 2001 to an estimated 98.1% in 2010 before exceeding 100% in 2011. This is simply unsustainable.

Worse, this does not include state and local government finances, which in many cases are in dismal shape. There we have a zero-sum game, where raising taxes further does not produce more revenues, but rather refugees. New Jersey lost over 70 billion in wealth over the course of a decade due to people fleeing high taxes. We’re tapped out. No one wants to pay for more government. We need to implement austerity measures now, such as freezing government salaries and employment, raising the retirement age, and cutting spending. That’s only going to happen if we fire the government employees responsible, namely our elected representatives this November. Civilization has learned a great many things from the Greeks in terms of art, science, philosophy, etc., but public finance should not be one of them.